leather industry of bangladesh: a new hopes for export...
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Research Department: August, 2016
Leather Industry of Bangladesh:
A new hope for export
diversification
About ECRL
Emerging Credit Rating Limited (hereinafter referred to as ECRL) began its journey in the year
2009 with the motive to deliver credible superior & quality credit rating opinion in various
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Al Mamun
Senior Research Associate
Subrata Howlader
Research Associate
Hafsa Binth Yeahyea
Junior Research Associate
Mohammad Riad Uddin
Junior Research Associate
Research Team
Arifur Rahman
FCCA
Chief Rating Officer
Editorial
Overview
ECRL Research provides
insights, opinions and
analysis on Bangladesh and
International Economies.
ECRL Research conducts
surveys and produces
working papers and reports
on Bangladesh’s different
socio economic issues,
industries and capital
market. It also provides
training programs to
professionals from financial
and economic sectors on a
wide array of technical
issues.
Although Leather Sector
represents the second largest
export sector of Bangladesh, its
export share is significantly
lower than RMG. So, Ready
Made Garment sector has a
strong dominance over the
countries total export.
Bangladesh's export basket is
heavily concentrated on one product
that is the readymade garments.
With about four million workers and
81.9 percent of total export
earnings, a lot of the country's fate
depends on a single sector. High
export concentration on the
garment sector can make the
economy vulnerable to shocks.
Export diversification through
leather sector also increases the
employments.
In the FY16 up to March, it has been seen that RMG accounting for more than 80 percent of
the total exports in the country. After RMG Leather sector holds the percentage of more
than 3 percent of the total country’s export. Among the total export of USD25 billion in FY16
(up to March) only three sectors (RMG, Leather & Jute) individually accounts for more than
USD600 million . Therefore to slackening the pressure on the balance of payment & to
participate effectively in the global trading system export diversification is mandatory for the
economy at this stage.
New hope for the leather sector after RMG because of the world’s largest
footwear manufacturer China is shifting focus away from this sector.
As a consequence of plus one strategy recently China is withdrawing them from the global
market. According to a report on China’s leather footwear industry, it has been shown that
their production had been dropped by 5.29% in 2012 & 7.45% in 2013. Although according
to a survey of Euro Monitor International, it has been seen that for the next few years
China’s footwear market will continue to grow at a rate exceeding 9%. But the recent policy
(Plus one strategy) may hamper this growth.
For the last twenty years, those western companies invested in china have drawn
themselves due to rising of production cost & other business challenges. Now they are
looking for other growing Asian markets both to hold down costs and to reduce
overdependence on China.
0.9 0.6
20.4
3.1
0.02.04.06.08.0
10.012.014.016.018.020.022.0
Exp
ort
in b
illio
n U
SD
Industrywise Export Performance (Up to March FY'16)
Leather
Jute
RMG
Others
Source: Export Promotion Bureau(EPB)
3.4 2.6
81.9
12.1 Leather
Jute
RMG
Others
Total Export Percentage(Up to March FY'16)
Total Export Percentage(Up to March FY'16)
Source: Export Promotion Bureau(EPB)
In both cases here is a potentiality to attract foreign investor in this sector in Bangladesh as
because of low labor cost, availability of rawhide, leather processing infrastructure & some
government incentives including duty-free machinery imports. According to LGFMEA
(Leather Goods and Footwear Manufacturers and Exporters Association), more than 51
foreign companies have expressed their interest to establish joint-venture footwear units in
Bangladesh. If the opportunity is gripped, it has been expected that annual $ 1.13 billion
leather industry of Bangladesh may grow to a $15-billion sector within a few years.
In FY15, Bangladesh earned US $
1.13 billion from the export of
leather, leather goods & leather
footwear. Comparing to the FY14
it was a growth of 0.5%.
According to Export Promotion
Bureau (EPB) Bangladesh earned
total USD851.33 million from leather
Export in July-March, 2015-16.
Among them USD354.02 million is
from exporting footwear, USD286.14
million is from exporting Leather
products & USD211.17 million is
from exporting Raw Leather. In the
FY15, earnings from leather
footwear, leather products & leather were USD483.81 million, USD249.16million, and
USD397.4 million respectively.
The leather industry of
Bangladesh suffer a big blow as
demand in major international
markets has been dropping amid
serious concerns over the
environmental hazard created by
the country's leather industry.
The Leather industry export of
Bangladesh has fallen in the first
quarter of FY16, where highest fall
was in raw leather by 24.4 percent.
One of the main reasons of
deteriorating export was EU & USA
buyers have reduced their purchases
from Bangladesh amid concerns over
the environmental hazards of leather production. EU & USA are the biggest markets for
Bangladeshi leather products. Other reason could be that china is one of the main buyers of
our rawhide & skins were not performing well in footwear manufacturing in recent times.
0
100
200
300
400
500
600
FY'09 FY'10 FY'11 FY'12 FY'13 FY'14 FY'15 FY'16 (Up to March)
Val
ue
in m
illio
n U
SD
Export Trend of BD Leather Sector
Leather Leather Products Footwear
Source: Export Promotion Bureau (EPB)
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00
Q3'FY16
Q2'FY16
Q1'FY16
Q4'FY15
Q3'FY15
Q2'FY15
Q1'FY15
Q4'FY14
Q3'FY14
Q2'FY14
Q1'FY14
Leather Industry Export Share of Total Exports ( During FY14 to FY15)
Leather Leather Products Leather Footwear
Source: Export Promotion Bureau (EPB)
Within the total size of USD215
billion of global leather market
Bangladesh now exports only
0.5 percent of the global leather
and leather goods market.
Bangladesh earned the major
portion of export revenue from the
leather sector by exporting raw
hides & skins to China. Other major
countries for leather exports are
Japan, Germany, Hong Kong, USA,
Spain, Italy, Korea Republic and
Netherland. In FY15 China
contribute to leather export 17.7
percent of total leather export. After
China, Germany & Japan contribute 10.3 & 10.9 percent respectively.
Growth in Leather Footwear Industry Growth /Trend
According to BBS Survey of manufacturing industries at 2011-12, the total number of leather
firms are 930, among them 23 units are categorized as a large firm, 100 are medium , 274
are small & 533 are micro firm. It is likely an eleven percent increased within five years
comparing to the 2005-06 BBS Survey Reports. But this trend of growth decreases in recent
years because of lower earnings of some firms & due to higher Competition among the
firms. As per SMI 2011-12 total person engaged in leather firms are almost seventy-six
thousand, Among them fifty thousand are male & rest are female. They earned 8380 million
TK as their salary & wages benefit. Their gross output is almost seventy-seven thousand
million TK.
According to BBS number of the person engaged in Leather industry of Bangladesh faced a
yearly compound growth of 22.4 percent during 2001-02 to 2011-12, although at the same
period value added per worker declined at a yearly compound rate of nearly five percent
.This is because average employment size declined at a yearly compound rate of almost 12
percent during 2001-02 to 2011-12. The average employment size declined because of
technological development of leather industry reduced the dependency over labor force.
Table1: Growth of Leather industry of Bangladesh
Growth in Leather Footwear Industry Growth /Trend
Description
(Enterprises with 10 or more
workers) Yearly Growth (%)
1991-92 2001-02 2011-
12
2001-02 2011-
12
Number of establishment 77 35 930 Negative Positive
Number of persons engaged 5302 10005 75524 6.6 22.4
Average employment size 69 286 81 15.3 -11.8
Countryise Export Percentage
FY16 (Up to Oct.) FY15 FY14
Source: Export Promotion Bureau (EPB)
-0.40
-0.30
-0.20
-0.10
0.00
0.10
0.20
0.30
0.40
Month to Month Growth
Manufacture of leather and related products
General Index for manufacturing
Source: Bangladesh Bureau of Statistics
Value added (Million Tk. in 1995-96 price)
1124 4712 22180 15.4 16.8
Share in Manufacturing Value Added (%) 1.4 2.0 1.4 3.6 -3.4
Source: BBS, Census of Manufacturing Industries 1991-92 , 2001-02 & 2011-12
The contribution of the leather
sector to GDP has been
increased year on year. So it has
been expected within few years
it will become an emerging
sector of the economy of
Bangladesh.
In FY15 it has been seen that the
contribution of the leather sector to
GDP is 1.06 percent of the total
value of GDP at the terms of
constant price, where leather
footwear added major portion. But in FY14 it was 1.18 percent in terms of total value of
GDP.
Manufacture of leather and related products are in a position of a slump over the
last 6 months likely due to the political crisis from the beginning of this year.
Leather manufacturing and
processing in Bangladesh is mostly
export oriented. When export order
declined production will also decline.
From the beginning of the year 2015,
the country faced political crisis and
Hartal was the daily routine of that
time. Due to Hartal, all
manufacturing firms faced a critical
business crisis especially leather
industry. This industry faced a
negative growth in production,
though there was a potential demand
in export in the international market. On January 2015 production growth was negatively 16
percent and on February production growth jumped negatively to 32 percent. It is
noticeable that, Export killer Hartal may be the big reason for the negative growth in
production of leather and leather related goods. After February 2015, Production growth is
gradually coming to the positive horizon most likely due to the opposition political parties are
giving a negative eye to Hartal.
Eid ul Adha (Feast of Sacrifice) is the time when the raw hide is available in Bangladesh and
production of leather and leather related goods is supposed to accelerate at that time. But
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
0.00
0.10
0.20
0.30
0.40
0.50
0.60
FY'09 FY'10 FY'11 FY'12 FY'13 FY'14 FY'15
GD
P %
Contribution of Leather Sector to GDP
Leather Leather Products
Leather Footwear Leather Industry
Source: BBS & EPB
this year production growth was not at its expected level and the trade of rawhide was
almost in a slump position. This situation was created most likely due to negative growth in
production that causes ability in rawhide for production. So willingness to pay for rawhide
got down.
If Bangladesh focuses on
environmental issues and
attracts investors by providing
them with land and capital at
affordable rates, the sector is
forecasted to become the
second-largest earner of foreign
currency after readymade
garments.
FDI inflows (net) in leather and
leather goods has been increasing for
the last six years in Bangladesh
which results from different
pragmatic initiatives of the
Government. In 2014, highest
investment (10.1 billion) came from
South Korea while 6.42 and 4.82
billion came from Netherlands and
Hong Kong respectively.
The condition of most of the tanneries of Bangladesh is dissatisfying. Very often
it is seen that trimmed leather, pieces of flash from cow and buffalo hides, hair,
liquid and solid wastes generated at different stages of production are spread
and piled all over the place in the tannery.
Workers in the tanneries usually do not wear protective masks. A large number of tannery
workers are suffering from adverse health conditions such as prematurely aged, discolored,
itchy, peeling, acid-burned, and rash-covered skin; fingers corroded to stumps; aches,
dizziness, and nausea; and disfigured or amputated limbs.
In Hazaribagh, liquid wastes of the tanneries go into the Buriganga River and causes serious
harm to the fish and other species living there. Harmful materials in liquid waste seep into
the surrounding cropland and underground water levels and in this way the tannery waste
poisons the soil, water, and air of the area.
0
10
20
30
40
19
96
19
97
19
98
19
99
20
00
20
01
20
03
20
04
20
05
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
FDI Inflow (Net) in Leather & Leather Goods
FDI Inflow
Source: Bangladesh Bank
0.08
10.1
4.822.63
6.42
0.07 0.08 0.01
3.46
0.1
3.75
02468
1012
Countrywise FDI Percentage
Source: Bangladesh Bank
Initiatives for Relocating Leather Industry:
In June 2009, the High Court asked the Government to relocate the tanneries from
Dhaka to a proposed leather estate at Hemayetpur, Savar by February 2010.
The movement to the relocation of tanneries from the capital to Savar was
suspended for a long time due to disagreements between authorities and tannery
owners over who should bear the cost of the move.
On October 13, a MoU was signed between Bangladesh Small and Cottage Industries
Corporation (BSCIC), Bangladesh Tanners' Association (BTA) and Bangladesh
Finished Leather, Leathergoods and Footwear Exporters Association (BFLLFEA).
As per the agreement, the Government will offer a compensation package worth Tk. 2.5
billion to 155 factories and assign Tk. 6.39 billion for the installation of the central water
treatment plant (CETP) - a must for red-category factories discharging toxic chemicals.